2020 Global Market Outlook – Q4 Update: Russell Investments’ strategists see old new cycle in Q4 outlook

Team prefers Canadian over U.S. equities as global economy gains its footing

TORONTO, September 29, 2020— Russell Investments Canada Limited has released its 2020 Global Market Outlook – Q4 Update, offering economic insights and market forecasts from the firm’s global team of investment strategists. Regarding the “Canada Outlook” segment of the report, the team believes the Canadian economy is getting back on its footing, particularly with respect to consumer spending and recent trends in housing and employment.

“Key economic numbers point toward recovery, but many challenges lay ahead and, as a consequence, both fiscal and monetary policies are expected to remain stimulative for some time to come,” said Shailesh Kshatriya, director, investment strategies at Russell Investments. “Generous income transfers coupled with exceptionally low interest rates have engineered a reignition of the housing market and boosted the household savings rate, which should benefit economic growth as businesses open and travel restrictions lift.”

As for the Canadian equity market, Kshatriya added there is a significant gap between current economic growth and potential growth. He expects this gap, which implies there are resources on the sidelines that if employed could boost the economy, will allow both monetary and fiscal policies to remain supportive of the business cycle.

Regarding Canadian equity valuation, Kshatriya views it as roughly neutral. “Traditional valuation measures such as the price–to–earnings ratio are rich, but those measures are offset at this point with a healthy dividend yield and scope for corporate profit margins to expand,” he said.

Global market outlook

Russell Investments’ strategists maintain a moderately positive medium–term outlook, even as markets navigate near–term risks from ongoing Covid–19 concerns and the U.S. federal elections in November. The team’s investment decision–making process scores global equities as slightly expensive, sentiment as neutral and the cycle as supportive.

“Overheated technology stocks and U.S. election uncertainty are near–term headwinds, but positive Covid–19 vaccine developments, dovish central banks and an ongoing economic recovery should allow equity markets to push higher,” said Andrew Pease, global head of investment strategy at Russell Investments. “We believe that the global recovery from the recession will lead to a long period of low–inflationary growth, supported by monetary and fiscal stimulus.”

The team also:

  • Prefers non–U.S. equities to U.S. equities.
  • Sees value in emerging markets equities. “China’s early exit from their Covid–19 lockdown and stimulus measures should benefit emerging markets more broadly,” Pease said.
  • Holds a neutral view on high yield and investment grade credit. “Credit spreads, that is the difference in returns due to different credit qualities, have since narrowed and at this point only adequately compensate for the likely rise in default rates following the Covid–19 recession,” Pease said.
  • Views government bonds as expensive. “Low inflation and dovish central banks should limit the rise in bond yields during the recovery from lockdowns. U.S. inflation–linked bonds offer good value with break–even inflation rates well below the U.S. Federal Reserve’s targeted rate of inflation.”
  • Believes real assets offer a pandemic recovery trade. “Sentiment appears overly bearish after real estate investment trusts sold off heavily in March, with investors concerned about the implications of social distancing and online shopping for shopping malls and office buildings. At this point value is positive.”
  • Expects the U.S. dollar will weaken into the global economic recovery, given its counter–cyclical behavior. “The U.S. dollar typically gains during global downturns and declines in the recovery phase,” Pease said. “The main beneficiaries should be the economically sensitive ‘commodity’ currencies, such as the Australian and Canadian dollar. Also, the euro and British sterling at this point are undervalued.”

For more details on the outlook, the team’s full report is available here.

About Russell Investments Canada Limited

Russell Investments Canada Limited is a wholly owned subsidiary of Russell Investments Group, Ltd. Established in 1985, Russell Investments Canada Limited has its head office in Toronto.

About Russell Investments

Russell Investments is a leading global investment firm providing tailored solutions and services to institutions and individuals through financial intermediaries. Russell Investments is dedicated to improving people’s financial security, leveraging an 84-year client-centric heritage rooted in investment innovation. The firm is the fourth-largest adviser in the world with C$387.9 billion in assets under management (as of 6/30/2020) and US$2.5 trillion in assets under advisement (as of 12/31/2019) for clients in 32 countries. Headquartered in Seattle, Washington, Russell Investments operates through 18 additional offices in major financial centers such as New York, London, Tokyo and Shanghai.


   

Contact:
Steve Claiborne, 206-505-1858, newsroom@russelllinvestments.com

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